12 NPA a/cs eligible for bankruptcy proceedings: RBI
The Reserve Bank of India (RBI) on Tuesday said 12 accounts representing about 25% of the gross bad loans in the banking system would be eligible for immediate reference for bankruptcy proceedings.
Indian banks are sitting on a stressed asset pile of close to ₹10 lakh crore; of this gross bad loans account for ₹7.7 lakh crore and the rest are restructured loans.
An internal panel of the central bank has suggested that accounts with outstanding amounts of more than ₹5,000 crore, of which at least 60% was classified as nonperforming by banks as of March 31, 2016, can be referred for bankruptcy proceedings.
RBI did not disclose the names of the accounts. The accounts were shortlisted by an internal advisory committee, mainly comprising of the central bank’s independent board members.
Under a May 5 ordinance amending the Banking Regulation Act, the central bank has the powers to suggest, even compel banks to invoke proceedings against defaulters.
At its first meeting on Tuesday, the panel discussed the top 500 stressed accounts of the banking system that could be referred for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC).
“The Reserve Bank, based on the recommendations of the IAC, will accordingly be issuing directions to banks to file for insolvency proceedings under the IBC in respect of the identified accounts. Such cases will be accorded priority by the National Company Law Tribunal (NCLT),” the central bank said. NCLT is the arbitration authority for cases filed under IBC.
So far, 81 cases of bad loans have been referred to NCLT, finance minister Arun Jaitley said on Monday after meeting bank chiefs. About 18 were referred for bankruptcy by their creditors, the minister said.
RBI also said that it would detail revised provisioning norms for cases accepted under the bankruptcy code.
“We are expecting RBI to give us forbearance on provisioning need for 8 quarters. Else, weak banks will find it difficult to take a haircut under the resolution plan of IBC,” said a senior banker on condition of anonymity
For accounts that don’t meet the criterion set by the advisory panel, the IAC suggested that banks should finalise a resolution plan within six months. In cases, where a viable plan is not agreed within six months, banks have to file for insolvency proceedings, the RBI statement said.
Details of the resolution framework for these other non-performing accounts will be released in the coming days, it said.
“It is a bold and much needed move in line with the ordinance,” said Sapan Gupta, national practice head for banking and finance at law firm Shardul Amarchand Mangaldas & Co.